Over the years the industry has demonstrated its ability to provide good service to the public at reasonable fares and rates. This has been the case in spite of a burdensome economic regulatory system. Interstate Commerce Commission regulations govern virtually every aspect of interstate bus operations. On top of this, most States regulate the intrastate operations of interstate carriers to varying degrees. Over the last several years, the ICCc has a taken some steps to liberalize economic regulation of the bus industry, most notably in the area of entry. Those steps appear to have benefited both the intercity bus industry and the traveling public. We believe, however, that such action does not go far enough. This Administration firmly believes in the power of free enterprise and in the need to reduce the burden of Federal regulations. The marketplace, not a set of regulatory standards developed in 1935, should govern the behavior of the managers of the bus industry. Ultimately, we see no need for continuing any Federal economic regulation of the industry. The industry's economic nature and structure tell us that reliance on the free enterprise system should increase the efficiency of bus operations, enable the industry to utilize its energy efficiency to the maximum extent, improve profitability, and result in better service to the public. Deregulation would also eliminate unnecessary government restrictions and red tape.

Mr. Chairman, as you are aware, some States have taken steps to reduce regulation of their bus industries. Motor carrier transportation in the State of Florida was completely deregulated on July 1, 1980. About this time last year, my staff conducted a preliminary study of the effects of deregulation on intercity bus operations in Florida. We are now in the process of updating that study and the results so far, on balance, appear favorable. In addition, representatives from the State of Florida have testified that its deregulation is working well. The State of Alaska deregulated buses in June 1980 and we have been told that there has been no adverse change in service. Rather, the industry has benefited from relief from burdensome regulatory red tape. Finally, Arizona voted in a statewide referendum to deregulate trucks and buses beginning in July 1982.

The Federal Government should learn from these States and follow their example. As you will see from the rest of my testimony, Mr. Chairman, we are not advocating that Congress totally deregulate the intercity bus industry tomorrow. We do see total deregulation as a desirable endpoint, however, and we think that the actions you take this year should launch us firmly in that direction.

You presently have under consideration H.R. 3663, which passed the House last fall. Mr. Chairman, the Administration believes that H.R. 3663 provides you with the appropriate framework for lessening Federal regulation of the bus industry. The changes I am about to suggest will, I believe, appropriately flesh out that framework and give us all a bill to which we can point with pride. A marked-up version of H.R. 3663 which provides suggested language to accomplish these changes is attached to the statement I have submitted for the record and copies have been supplied to Committee staff.1

Let me now address each of the areas of regulation which we believe require significant change and tell you how we would alter H.R. 3663 to achieve that change.

ENTRY FREEDOM

At present, entry into this industry is governed by cumbersome procedures and restrictive tests, primarily aimed at protecting existing carriers.

We are convinced that freer entry for both the regular-route and charter and special operations sectors will result in increased competition among carriers and a wider variety of price/service options for the traveling public. In recent years, the ICC has applied more liberal entry policies and procedures with favorable results, especially for the charter and special operations sector. Further, H.R. 3663 takes several steps in the right direction, simplifying the tests to be applied by the Commission in judging new entry applications. However, the Administration believes that the entry standards of H.R. 3663 are still too restrictive, and we propose that entry for all common and contract carriers and brokers be based solely on a new fit, willing, and able test which would consis of evaluating the applicant'safety fitness and demanding proof of adequate nce, subject to a minimum insurance standards of this Act. We believe that these are the or tors appropriate for the government to evaluate in entry cases.

The Administration's proposal would also allow mediate entry for intrastate service provided on scheduled interstate routes, including elimination of the test of unreasonable burden on interstate commerce. We see no reason to delay service to

1 The material referred to has been retained in the committee files.

intrastate passengers on interstate routes by carriers who are already certifiably fit, willing and able.

PRICING FREEDOM

Closely related to removal of entry restrictions is the need for pricing freedom. We strongly believe that the two must be tied together. Pricing freedom will encourage competition and the setting of innovative fares, representing a great benefit to bus passengers. It will also allow carriers to more quickly tailor their services to the costs of particular operations.

H.R. 3663 provides for a zone of pricing freedom, designed to encourage independent, flexible pricing by carriers. The Administration endorses the concept of the zone, but we believe that the bus industry should eventually operate in an environment of total rate freedom. Our proposal, therefore, provides for elimination of the pricing zone three years from the date of enactment of the Act.

ANTITRUST IMMUNITY

We believe that along with pricing freedom must come the elimination of antitrust immunity for ratemaking among bus operators. As you know, Mr. Chairman, bus companies are allowed to discuss and vote upon single-line and joint-line fare changes and general rate increases and propose these changes through the bus industry rate bureau, the National Bus Traffic Association (NBTA).

We see no need for this immunity to continue. Bus companies can continue to engage in necessary administrative and ratemaking functions without immunity, so that essential interlining of passengers and express can still be performed. The Administration's mark-up of H.R. 3663 provides for total elimination of antitrust immunity for bus ratemaking activities, although to minimize any potential disruption in the industry, the immunity would be phased out, with all immunity ended by 1985. Further, we propose to eliminate the study of bus ratemaking required in H.R. 3663 from the work of the Motor Carrier Ratemaking Study Commission established under the Motor Carrier Act of 1980. We believe the case for elimination of antitrust immunity is clear, and we see no need to perform such a study.

STATE PREEMPTION

One of the most controversial issues involved in bus deregulation is what to do about the effects of state regulation on interstate operations. The issue manifests itself in two ways. First, many state regulations are presently implemented in a manner in opposition to Federal standards, and may in fact thwart deregulation at the Federal level. The bus industry has provided us with numerous examples where this appears to be the case. Second, individual state regulations requiring reporting and registration often vary significantly, creating a considerable burden for carriers. As you know, Mr. Chairman, the Department and the ICC have been studying the issue of uniform state regulation, as directed by Congress under the requirement of Section 19 of the Motor Carrier Act of 1980. The report on this joint effort, which also investigates state regulation of buses, is far enough along for us to conclude that much state regulation of buses adversely affects interstate commerce, and that deregulation at the Federal level, absent similar action at the state level, is not sufficient. Nevertheless, this Administration realizes the importance of state authority; the Federal government will not interfere in matters that are truly state or local in

nature.

We believe the approach to the problem taken in H.R. 3663 is a good one, because it involves a careful balancing of Federal and state interests. First, it permits ICC preemptive actions only in those circumstances where both intrastate and interstate commerce are involved. Second, it affords the states adequate opportunity to act before their decisions-or their inaction-can be "appealed" to the ICC. Third, it does not take a blanket preemption approach but requires that individual cases be addressed on their merits and also breaks down the issues for preemptive action by the ICC into separate and distinct areas: entry; rates, rules and practices; and exit. As I discussed earlier, we do believe that some modification of the preemption provisions is necessary in order to ensure that carriers will be allowed sufficient freedom to enter the industry. We also believe that carriers should be able to exit markets more quickly. The Administration's proposal would shorten the time allowed the ICC in making exit determinations as well as the length of time for which carriers may be required by the ICC to continue to provide intrastate service. We would also delete the burdensome public interest test in exit determinations, although keeping a modified test for unreasonable burden on interstate commerce.

We do not believe that the Administration's proposed changes to H.R. 3663 infringe on legitimate state authority. Rather, they are designed to further reduce contradiction between the Federal and state regulatory systems.

In short, we believe H.R. 3663's approach to preemption, with our suggested modifications, is an excellent compromise between no preemption at all, on the one hand, and a blanket overriding of states' rights, on the other, Providing for no preemption would nullify much of the social benefit of what we seek to do at the Federal level. A blanket approach would ignore the legitimate rights of the states to have a hand in regulating commerce.

SAFETY

Although the intercity bus industry has a fine safety record, safety must be a continuing concern to us. We strongly support the idea of maintaining significant minimum insurance standards which is contained in H.R. 3663. Because safety and insurance are the crucial components to our proposed entry standard, however, we would have a different approach to establishing those standards. Rather than legislate specific minimum insurance levels, we would have them determined by the Secretary of Transportation through rulemaking. This flexibility is important to ensure that the standards will be responsive to demand for public safety and will be able to change with changing conditions. Further, in the Safety Enforcement section, we would require, rather than allow, the ICC to suspend a bus carrier's certificate or permit for safety reasons if it finds that the carrier has been conducting unsafe operations that are an imminent hazard to public health or property. This will provide an additional incentive for carriers to maintain safe operations.

OTHER CHANGES

The Administration's proposal contains other modifications to H.R. 3663, among them inclusion of language emphasizing the benefits of competition in the Congressional Findings and National Transportation Policy sections. In the area of mergers, we would make bus company mergers subject to the provisions of the antitrust laws. Mr. Chairman, we believe that our proposed changes to H.R. 3663 will produce a significant intercity bus regulatory reform bill, one which will allow the marketplace, not the government, to be the true regulator of the industry. The Administration's modifications are aimed at significantly increasing competition in the intercity bus industry and further reducing regulatory burdens on the industry, while also maintaining appropriate safeguards to protect the traveling public.

DEREGULATION WILL BENEFIT THE BUS INDUSTRY AND THE PUBLIC

In conclusion, Mr. Chairman, we see no need to continue any Federal economic regulation of the intercity bus industry. We are committed to reliance on competition, not government regulation, in providing transportation services. The intercity bus industry is an essential part of our nation's transportation system. Freedom from economic regulation will increase the efficiency of bus operations, improve the financial health of the industry, and improve available service to the traveling public. Mr. Chairman, I look forward to working in the future with you and the Members of the Subcommittee, as well as the Chairman of the Interstate Commerce Commission, to achieve those ends.

That completes my prepared statement, Mr. Chairman. I would be pleased to answer any questions you or other Members of the Subcommittee might have.

Senator DANFORTH. The next witness is Reese Taylor, Chairman of the Interstate Commerce Commission.

STATEMENT OF HON. REESE H. TAYLOR, CHAIRMAN, INTERSTATE COMMERCE COMMISSION, ACCOMPANIED BY BOB SHEPHERD, CHIEF OF STAFF; AND JAN ROSENAK, LEGISLATIVE COUNSEL

Mr. TAYLOR. Thank you, Mr. Chairman, and I will have to apologize gize again for my voice. My laryngitis is still with me, unfortunately.

On my left I have my chief of staff, Bob Shepherd; and on my right Jan Rosenak, our legislative counsel.

I would like to thank you for the opportunity to appear here today to present the views of the Interstate Commerce Commission with regard to regulatory reform of the intercity motor bus industry.

Let me begin by saying that H.R. 3663 is a good start in reforming regulation of the bus industry and in providing a greatly needed impetus toward more competition in this industry. It offers a balanced approach, one that is essential to regulatory reform, by easing entry, establishing a more certain procedure for exit and providing bus companies with greater pricing flexibility.

While H.R. 3663 represents a considerable improvement over present law, the Commission believes changes should be made to insure that the bill achieves its stated policy of promoting competition and efficient transportation service.

Today I will focus on the issues we believe are at the crux of reform for this industry: eased entry, eased exit, institution of flexible pricing in conjunction with the elimination of antitrust immunity, and clarification of the Federal-State relationship.

With respect to common carriage, H.R. 3663, while maintaining the present fitness standard, eliminates the requirement of a demonstration of public support for a proposed service, but allows a protestant to show that a grant would not be consistent with the public interest.

Report language emphasizes that the fitness test, which is defined to include financial, operational and safety fitness, is intended to weed out unfit applicants, not to place additional barriers on entry or to substitute the regulatory process and bureaucratic judgment for normal business judgments.

For contract carriage and broker authority, the bill adopts a fitness only test. Unlike the common carrier provision, fitness is the sole standard.

We commend the House for eliminating the present burdensome public convenience and necessity test and the need for public support of an application. We strongly believe this change will simplify and expedite entry. However, we see no reason to have different tests for common and contract carriers. Accordingly, we urge the Senate to adopt a "fitness only" standard for all motor carriers of passengers, a standard along the lines of my legislative proposal approved by the Commission for submission to Congress and sent forward on February 10, 1982.

As you know, in that proposal we advocated a relaxation of entry standards not only for motor carriers and brokers of passengers but for motor carriers generally, as well as for water carriers and freight forwarders. We urged consideration of our proposal as a part of the bus legislation. This is still our position. Whatever is done vis a vis entry standards for motor carriers of passengers should also be applicable to these other modes.

We believe that a "fitness only" standard would be particularly appropriate in the bus industry, which is: (1), dominated by two firms: and (2), increasingly faced with competition from other modes of transportation. The entry policy we recommend would create strong pressure from potential market entrants for existing carriers to become more competitive and innovative in their price and service offerings.

H.R. 3663 would allow the Commission to grant temporary or emergency temporary authority to a bus line seeking to serve a community having no other motor carrier capable of meeting its immediate needs. In addition, the bill provides that the Commission may, when there is no other service to a community, extend an ETA for up to 180 days so that a carrier may experiment in new markets.

We suggest the section be amended to permit any fit carrier to receive temporary authority if, due to emergency or limited term conditions, there is not sufficient time to process an application for permanent authority.

Our proposal is consistent with H.R. 3663, yet goes further. It would allow us to continue to issue authority in emergency situations and at the same time would eliminate a step in the three step-ETA, TA and permanent authority-application process, thus permitting the Commission and the carriers to realize a substantial savings in funds and resources. Finally, this change would facilitate development by the Commission of procedures which would permit carriers to file one application for both temporary and permanent authority.

We favor a zone of rate flexibility similar to the zone in H.R. 3663. While we would be reluctant to allow a broader zone of upward rate freedom until more competition exists in the industry, that zone could be automatically broadened at the end of 3 years. In terms of downward flexibility, bus companies need as much freedom as possible to compete with Amtrak, private automobiles, and the relatively unregulated airline industry. Greater rate flexibility should lead to greater use of peak-load pricing and discount fares. For these reasons, we would urge Congress to permit the Commission to enlarge the downward limit of the zone. In fact, if the bill provides for freer entry and elimination of antitrust immunity, as suggested by the Commission, it may be that rate regulation will no longer be needed after a period of time.

In general, we believe that the justification for changes in the rate bureau system applicable to motor carriers of property applies to motor carriers of passengers as well. However, the reasons for the substantial delay in implementation of the provisions of section 14 of the Motor Carrier Act do not appear to apply to passenger carriers.

The relative simplicity of the situation and the dominance of one or two carriers in the industry together provide a substantial justification for prohibiting discussion and voting on single-line rates immediately. Moreover, it does not appear that any further study is necessary in the area of bus regulation. The problem is simpler, the answer is clearer, and the need for more rapid action is evident.

The Commission believes that continued immunity for establishing joint line rates is also unnecessary. However, we do not object to the phasing out of this antitrust immunity over a period of several years in order to allow carriers to establish and adjust to new methods of adjusting joint line rates.

In addition, there is no demonstrated need for collective determination of nationwide general increases or decreases, as would be permitted by H.R. 3663. Collective procedures to request rate in